What You Need to Know About Refinancing Your Home
With interest rates scraping the bottom, now is a great time to refinance your home. It could save you thousands of dollars over the coming years or ease your immediate financial burdens. If you’d like to consider refinancing to strengthen your financial situation, here’s what you need to know:
Assess your situation.
Not everyone is eligible to refinance a home. You need to be employed, and you have to already have some equity in your home. From there, your credit score will also play a factor. You’ll want to consider your current interest rate as well as the cost of refinancing to determine how much you will save and whether a new mortgage is worth it.
The exact rate you get will depend on a few things, but in general, if you can get a rate that is one percent better than what you’re currently working with, refinancing is probably worth it. In some situations, even less than a one percent change will be beneficial. Every situation is different, so you should talk to a professional to determine if you’re eligible and if refinancing is a good option for you.
Know there are different types of mortgage refinancing.
There’s the rate-and-term refinance, which is what most people think about when they talk about refinancing. In this situation, you’re getting a new, lower interest rate or you’re changing the duration of the loan (from 15 to 30 years, for example, or vice versa).
There’s also the cash-out refinancing option. In this situation, your new loan is for more than what you actually owe, and you get the difference in cash. That money is yours to use as you see fit on anything from home repairs to medical bills to groceries. It is, of course, money you will still have to pay back, but it may be a good way for you to use the equity in your home to get access to cash when you need it most.
Consider your goals for refinancing.
You might be striving to lower your overall monthly expenses, especially during these uncertain times. If that’s the case, you might simply change from a 15-year to a 30-year mortgage. You’ll pay more interest over the long term, but you’ll have lower monthly payments, which may be especially helpful right now.
If your goal is to lower the amount you pay in interest over the course of the loan, the lower interest rate you may be able to snag now combined with a shorter term for the mortgage will help you do that. Defining your goals will help you determine which type of refinancing and which terms are right for you.
Don’t forget closing costs.
This will generally be a few thousand dollars. You’ll need to make sure you have the cash ready to pay it, or the amount may be able to be included in your new loan.
Why it’s a good time to refinance:
Whether it’s a good time to refinance will vary from individual to individual. However, many people are finding the current climate ideal for refinancing, or the situation is driving them to do so. Low interest rates are appealing if you’re looking to lower monthly bills or lower your cost over the long term. Cash-out refinancing may be a lifesaver if you’re in a situation where you need money quickly.
With historically low interest rates, refinancing is at least worth learning more about. It’s important to know what your options are, even if you don’t think it’s a good fit for you right now. Contact us if you have any questions.